Early in the yr 2005, the owner of a building made a lesse an offer. The lease contract has 4 more y

Early in the year 2005, the owner of a building made a lessee an offer. The lease contract has

four more years to run, and the rent is to be increased by 10% a year each year over the

preceding year. The rent is payable in equal monthly instalments but (for the sake of

simplicity) assume it is all paid at year-end. The building owner%26#039;s offer is that a lump sum

payment now (early in January 2005 before the January rent check had been prepared) of

$80,000 would be considered as prepaid rent for the remaining four years of the contract. If

the offer is accepted, Charlie would borrow $80,000 from the bank. The arrangement with the

bank is that $20,000 of the principal will be repaid on December 31, of the years 2005

through 2008, with interest at 12% on the amount owed at the beginning of each year. Use

the interest rate as the discount rate. The tax rate is 22%. Assume that in 2004,?

the rent payment was $24,000. Should the of

Early in the yr 2005, the owner of a building made a lesse an offer. The lease contract has 4 more years to?child tax credit

You are taking a big risk paying in advance. If your business fails etc. you will still be liable for the bank loan. The owner is the only one profiting from this offer. Your rent increases by 10% but you will be paying 12% interest to the bank. they will add 12% to 80,000. up front. you now owe 88,960.00 you pay 20,000 that leaves 68,960. add 12% you owe 74,710 you are already paying 14,000 interest and you have only made 1 payment. You can claim the rent costs on your taxes. it will cost well over 20,000 in interest to save 16,000 DON%26quot;T DO IT.

Early in the yr 2005, the owner of a building made a lesse an offer. The lease contract has 4 more years to? loan

This is really an easy question if this were an actual business decision. The answer would of course be NO for the following reasons:

1) You don%26#039;t know if the business will succeed, if you%26#039;ve prepaid 5 yrs you%26#039;ll have no leverage with the owner of the property.

2) You won%26#039;t want to tie up all of your credit for an unessary loan. You may need that credit to purchase equipment, inventory, ect.